Unpublished Case Study
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STRIKING WHILE THE IRON IS HOT A case study of the Pohang Steel Company’s (Posco) proposed project in Orissa, India Manshi Asher 1 National Centre for Advocacy Studies June 2007 1 The author is an independent reseracher, currently studying the socio-economic and environmental impacts of Special Economic Zones. She has done this case study while she was working with the campaign support initiatives of the National Centre for Advocacy Studies (2004-07). As a part of this the author was involved in advocacy processes on issues of industrial projects affecting livelihood and environmental rights of local communities, specifically in the Central Eastern Belt of the country. She completed her Masters in Social Work in 1998 from the Tata Institue of Social Sciences, following which she was associated with a group called Foundation for Ecological Security for five and a half years, in Rajasthan, Kutch and Uttarakhand, working with communities on collective governance and management of natural resources. She also regularly writes for newspapers and magazines. She can be reached on [email protected] PREFACE The Erasama block of Jagatatsinghpur district in the Indian state of Orissa saw itself placed on the world map on the unfortunate day of October 29, 1999, when a super cyclone hit the east coast of India, devastating the area and killing almost 20,000 people. But as we move from one disaster to the next and memories of the old fade – so did those of this natural calamity. People were rehabilitated and recuperated. Little did they know they would face a devastation of a different kind within less than a decade. On June 22, 2005 the Orissa government signed a Memorandum of Understanding (MoU) with a South Korean steel giant – the Pohang Steel Company Limited, also known as Posco. This is India’s largest foreign direct investment (FDI), involving the building of a 12-million tonne integrated steel plant and port in Erasama block. 4,500 acres of land have been earmarked for the project in Jagatsinghpur district alone. The land required for the railway, road expansion and mines is not included in this figure. The proposed steel plant is expected to affect seven villages in three gram panchayats, namely Dhinkia, Nuagaon and Gadakujang. Apart from these villages, communities in Keonjhar district will be affected by the mining of iron ore for the plant. While the project initially drew mixed reactions at the local level, the communities in these villages subsequently united to oppose it. This case study, done as part of the NCAS’s research on ‘Globalisation, Governance and Grassroots’, attempts to document the local impact of the proposed Posco project and the struggle that has emerged to oppose it. The study also examines the policy scenario at the state and national levels (which let a deal like Posco come through) and looks into the linkages to global forces. The study is based on interactions and discussions with communities and activists in Erasama block, Jagatsinghpur district and Banspal block, Keonjhar district. Apart from this, for more than a year now I have been associating with several activists and people’s groups across Orissa on the issue of unregulated growth of sponge iron industries, as part of NCAS’s ‘campaign support’ work. I have also relied heavily on information from the news, media reports and other secondary sources. I would like to thank the people of Nuagaon, who are struggling for their survival every day with great courage, and who were open to hosting me. I would also like to mention the help I received from Abhay Sahoo, Ahkay, Biswajit and Umakant, that was most valuable. Other persons who have provided critical inputs include Sudhir Pattnaik, Lingaraj Azad, Sudhanshu Panda, Prafulla Samanatara and Madhumita Ray. In late April 2007, an independent four-member team (including me) visited Bhubaneswar and Jagatsinghpur on a fact-finding mission to get an insight into the concerns being raised in relation to the project by the affected communities and to understand the steps taken by the concerned authorities to address these concerns. The findings of the team have been incorporated in this report. Manshi Asher 1. THE MEMORANDUM OF UNDERSTANDING (MoU) 1.1 Controversy and conflict The Posco steel project is one of many coming up in the Indian state of Orissa, which is going through a ‘steel revolution’ of sorts. Over the past three years, the state government has signed more than 40 MoUs with companies, both domestic and foreign, mortgaging the 20 billion tonnes of iron ore reserves that it’s supposed to be sitting on. The third largest steel company in the world, Posco, has managed to grab a big chunk of these reserves - about 600 million tonnes - which it expects to exploit over the next 30 years. The steel market, growing at an annual rate of more than 4%, has been witnessing a global boom since the beginning of this decade. This was what enticed Posco to this eastern state to lead the revolution. As well as the global race for cheap labour and raw materials (iron ore and coal). National and multinational corporations have been making a beeline to resource-rich developing countries to set up mega integrated steel projects and capture mineral resources (like iron ore). The BJD-led government in Orissa has been a willing participant, laying the tracks for this race. It gave the Korean company a deal which it hadn’t even considered the big domestic players eligible for. However, Posco has faced hurdles from the very beginning in its journey to set up its integrated steel plant. Talks on the project began way back in August 2004, when Posco and BHP Billiton of Australia jointly approached the Orissa government with a proposal to set up a 10-million tonne per annum (TPA) capacity steel plant in the state. Welcoming the proposal with great enthusiasm, the state government agreed to sign a Memorandum of Understanding (MoU) by December 2004. The first stumbling block came when the company insisted on exporting iron ore from India. According to Posco officials, the alumina content in Indian ore is 2-3 per cent higher than required, so it needs to be blended with ore imported from Australia. In the first week of April 2005, the Orissa government agreed to identify and earmark iron ore mines for Posco. The Korean company sought mining rights for one billion tonnes of ore over 50 years. But state policy dictated that it was not entitled to more than 480 million tonnes for a 12-million tonne plant. Furthermore, existing rules did not permit the state government to offer mining rights for more than 25 years. ( www.projectsmonitor.com/detailnews.asp?newsid=9401 ) Yet, it reserved the Gandhamardan and Malangtuli mines, with nearly 400 million tonnes of high-grade iron ore deposits, for Posco’s $12billion project. The state-owned Industrial Infrastructure Development Corporation directed the Jagatsinghpur district administration to reserve about 3,000 acres at the Jatadhari river mouth near Paradeep port for the proposed plant. The Ministry of Commerce (MoC), Government of India, turned down Posco’s proposal in the second week of April 2005, saying it was against any project-linked exports of iron ore and if Posco desired a long-term contract, it could enter into a deal with state-owned trading companies like the Minerals and Metals Trading Corporation (MMTC). Following this, Posco, called off the MoU signing programme scheduled for April 14, 2005. However, the Orissa government and Posco officials continued to maintain that the project was not off. ( http://www.projectsmonitor.com/detailnews.asp?newsid=9401 ) Around the same time, the company finalized Paradeep in Orissa as the site for the proposed steel plant. Duburi and Dhamra were identified as possible alternatives. However, there was still no sign of progress on signing the MoU with the state government. On May 16, 2005, the Union Finance Minister P. Chidambaram convened a meeting with Orissa government officials and key Posco executives to discuss the slow progress of the project. By now, Posco had climbed down from its earlier position and was ready to set up the plant without exporting ore. The company had also scaled down its ore requirement. The much-awaited MoU was finally signed on June 22, 2005. The Orissa government eagerly lapped up Posco’s offer, which Brazil had rejected earlier on the grounds that the company was not ready to pick up ore at market prices. Even investor friendly China had given the Posco deal the thumbs down, refusing to open up its vital ore reserves to foreign investment. The MoU not only sold iron ore at a discount of Rs2,000 per tonne but also gave the company the right to ‘swap’ the ore. This meant it could export ore of high alumina content and import ore of lower alumina content. This clause came in for severe criticism within and outside the state. By November 2005, the BJD-led government in Orissa had signed 43 MoUs in the iron and steel sector, worth Rs1,60,132 crores. Of these, six (including Posco) were mega steel projects, all above 3 MTPA capacity. (Annexure 1 – List of MoUs). 1.2 What the project is all about: reviewing the MoU In order to understand and scrutinize the exact deal that took place between Posco and the Orissa government, almost the entire MoU has been reproduced below. The magnitude of the project and the extent to which the state government will be supporting the multinational are clearly reflected in its clauses. Excerpts from the MoU (critical points have been italicized) The Government of Orissa, desirous of utilizing its natural resources and rapidly industrializing the State , so as to bring prosperity and well-being to its people, has been making determined efforts to establish new industries in different locations.